DISCUSSION BRIEF

Economic and climate challenges in the Mendoza wine region

Argentina’s Mendoza region produces world-famous wine, making it one of the largest wine producers in Latin America. But like many wine-producing regions, Mendoza faces challenges as the climate changes and water demand increases. Smallholder producers could be particularly hard hit. Though they produce a majority of the region’s wine grapes, they don’t reap the economic benefit of the inter- national growth in wine demand. Smallholders also are increasingly vulnerable in their water supply due to emerg- ing climate conditions.

As observed by Carlsen et al. (2016), it “covers only half of the story” to focus on potential climate impacts alone; socio- economic conditions also evolve over time. An evaluation on how to adapt water supply policies to climate change should consider the current socio-economic struggles to ensure a sustainable future and economically thriving outcome. © Tony Bailey/Flickr © Tony The Mendoza region of Argentina is one the largest wine producers in Latin This brief provides an initial overview of the Mendoza wine America, but it faces challenges ahead as the climate changes. production region by examining the literature on production history, economic difficulties of small wine-grape grow- This turning point for the industry came at a tremendous ers, current climate-related challenges, and water-related socio-economic cost for the growers and the region. Howev- policies. This overview describes existing socio-economic er, this experience birthed a new platform for wine produc- vulnerabilities, in particular for small growers in the wine tion that focused on quality and improved the international industry. It also identifies the challenges in water supply reputation of Argentinean wine. regulations that are based on historical, and more consistent, water conditions, as well as a trend towards more frequent Today, Mendoza’s main economic activity is wine produc- and more extreme drought events. tion (Castex et al. 2015). Despite its dry climate, 4.8% of the territory is composed of an irrigation oasis that contains The study described in this brief confirms the need for robust most of the agricultural production, including wine grapes, approaches that inform decision-making about longer-term and 95% of the population of the Mendoza province (Bon- climate vulnerabilities, about more adaptive water manage- insegna and Villalba 2006; Masiokas et al. 2006; Reta 2003; ment policies and about preparations for potential economic Yapura and Salomon 2015) . Mendoza is the main wine impacts on the regional economy. producing region of Argentina: 72% of the country’s wines and musts1 and 69% of its grapes come from there. Most The Mendoza wine region: from quantity to wine exports go to markets in North and South America, the quality Netherlands, the U.K. and Japan. Driven by domestic demand and price control regulations, wine supply and production growth in the Mendoza region Mendoza’s signature wine is Malbec, and it is the world’s of Argentina has historically been dictated by the quantity, main producer of Malbec wine grapes. Figure 3 shows that and not the quality, of wine. Figure 1 provides an annotated 60% of Malbec wine is produced in the Mendoza region. historic timeline of wine production in the region. Data from Wine Spectator magazine illustrates the gradual increase in both quality score value and bottle prices of The introduction of high yield varieties increased production Mendoza wines since the 1980s crisis (Figure 4) and il- of low quality wine grapes in the 1970s (Biondolillo 1999). lustrates that the region’s push to increase the quality of In addition, minimum price controls at the national level wine and sales around the world has helped Malbec gain prevented wine supply from adjusting to changes in demand. international recognition. The large domestic production of low-price wine promoted the growth of lower quality wine, causing an increasing The plight of the small grower overstock that led to an increase in quantity and a progres- Not all growers benefit from this improvement in interna- sive reduction of prices over time. In the 1980s, the over- tional reputation. A large portion of small growers are still stock of wine was so substantial and so lacked international struggling to produce wine grapes with acceptable interna- quality standards that it generated a crisis for the sector, tional standards, leaving them particularly vulnerable to ex- resulting in the closure of many wineries and the eradica- ternal shocks such as changes in the value of the Argentine tion of 100,000 hectares of wine grapes, 35,000 hectares of which were Malbec vines (Richard-Jorba 2008; Richard- 1 Must is freshly pressed fruit juice that usually comes from grapes. It contains Jorba 2010; Rivera Medina 2006). the skins, seeds, and stems of grapes and is the first step in winemaking. Sheet 2

250,000

200,000 5) 1980's: 100,000 hectares was 4) Highest erradicated. r e s 150,000 a production of t 253,110.65 Hectares 6) 1990: The

H e c 2) 1959: Creation of industry started The National a slow 100,000 Institute of recovery. Viticulture 8) 2001 - 2005: 3) 1960: Wineries start to The Patrimonio value quantity over 9) 2005: Mendoza 7) 1993 and 1996: de Mendoza quality to supply the high enters in the Great 50,000 1) Initial stages Old wineries was created. local demand. Wine Capitals of production. became museums (GWC) Network. and restaurants. 0 1 9 4 1 9 5 1 9 5 3 1 9 5 1 9 5 7 1 9 5 1 9 6 1 9 6 3 1 9 6 5 1 9 6 7 1 9 6 1 9 7 1 9 7 3 1 9 7 5 1 9 7 1 9 7 1 9 8 1 9 8 3 1 9 8 5 1 9 8 7 1 9 8 1 9 1 9 3 1 9 5 1 9 7 1 9 2 0 1 2 0 3 2 0 5 2 0 7 2 0 9

Figure 1: Hectares of wine grapes produced over time and key historical events. SuPreparedm of Mend byoza the for authoreach AÑ basedO. The voniew the is fi informationltered on AÑO from, whi cRichard-Jorbah excludes 1946 2008;, 1947 a Richard-Jorband 1948. 2010; Richard-Jorba 2006; Moretti-Baldín 2008; Rivera Medina 2006.

Pie Chart Size (thousand $, 2012) Netherlands: 7,674 MWE=$31.6 million 100,000 Canada: MWE= 200,000 $77.6 million U.K.: MWE= 300,000 $39.6 million 428,034

United States: MWE=$338.1 million

Japan: MWE= $19.6 million

Venezuela: MWE= $8.7 million

Chile: MWE= $7.6 million

Mendoza Exports Wine (MWE) Brazil: MWE= Rest of fresh fruits $53.3 million Pumps Other Metals Oil Machinery Garlic Fruit Juice & Horticulture Food waste for animal feed Electronics Dry and Frozen fruit Figure 2: Mendoza exports from various sectors and Mendoza Wine Exports (MWE) for main export countries. Prepared by the author based on the information from Gobierno de Mendoza (2016) this causesthe valueofthewinetodecrease evenfurther. vine healthand byprogressivelydecreasing grapequality; do so,theyreduce costsbycuttingoutpractices thatensure to beascompetitivelarge growersintheirproduction. To families (Biondolillo2008).Small growersarestruggling low value and produced by thousands of small producers and Argentina –asmuch as95%someyears–islowquality, peso againstthedollar. A majorityofthewineproducedin Prepared byauthorbasedoninformationfromWineSpectatorDatabase(2016) Figure 4: Prepared byauthorbasedoninformationfromAndersonandAryal(2013). Figure 3:Top 10producersofMalbecwinegrapes. Un N South e ite w Ar Aus d Z ge Ca

Fr e Sta Afr Sp a tr n Chile n a I la tin ta a a n te a

Avg. Bottle Release Price ic n d lia c 1 1 1 1 1 2 2 in ly d a a a e s 2 4 6 8 0 2 4 6 8 0 2 0 0 0 0 0 0 0 0 0 0 0 0 0

1985 Sc

o 2,000 re 9 9 9 9 9 9 9 8 8 8 8

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1999 M a

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2001 H 16,000 e c for bettereconomic efficiencyandwinegrape quality. how toinstillchanges insmallgrowerproduction choices of qualitystandards betweenlarge andsmallgrowers, Mendoza ishowtopreventthe wideningofthecurrentgap One ofthemaineconomicchallenges forwineproductionin impact onalarge portionofthefamiliesinthissector. Any changesthataffectthe wine industrywillhaveagreat 2002 ta r

e 18,000

2003 s

2004 20,000 2005 22,000 2006

2007 24,000 2008 Pr ov Sa Sa Rio N M La La Chub c B N a

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2012 30,000 a 2013 32,000 2014 2015 Use this one for the Discussion Brief

Grape Quality

Exogenous Quality Possible Grape Vineyard Aspects Adaptation Quality Establishment Factors Affected Options

Irrigation Distribution Texture Management, system, Plant water Irrigation, Taste availability and Rootstock

Soil status selection Aroma Limited Options. Rootstock Soil addition Composition selection with little impact

Rootstock Canopy Radiation selection, Management Variety (clone)

Color Rootstock Precipitation Irrigation selection, Sugar Variety (clone) Content Climate Canopy, Yield Irrigation, Frost protection Temp System Temperature (sprinklers or alternative methods)

Figure 5: Wine Quality Aspects. Prepared by author based on information from an interview with wine phenology experts from the Department of Viticulture and Enology at the University of California, Davis.

Climate challenges of surface and groundwater in the summer comes from sea- The Mendoza region’s limited rainfall means accurate irriga- sonal snow melt and glaciers (Castex et al. 2015). A distinct tion timing is critical to most wine production systems. Due characteristic of the Mendoza wine region is the presence of to their specialized soil and climate condition, grapes are the “oasis” sustained by a supply of shallow groundwater that particularly adapted to Mediterranean climates and sensitive is fed by snowmelt in the surrounding mountains. The agricul- to changes in temperature, precipitation, and solar radiation tural sector uses 80% of the available groundwater, and 70% (Figure 5). Around the world, climate change is affecting the of all agriculture is wine (Morábito et al. 2009). phenology and the composition of grape vines by causing an earlier ripening and by increasing the sugar concentration of Climate projections for the region indicate three main im- grapes (Mira de Orduña 2010; Nicholas 2014; Thach and Matz pacts: increases of rainfall and decreases in snow precipita- 2004; Viers et al. 2013; Webb et al. 2013; Webb et al. 2012) tion in the valley, along with reductions of glacier area in the surrounding mountains. Decreases in snowfall reduce The literature on wine phenology2 shows no significant cli- surface and groundwater available for irrigation (Salas et al. mate change impacts on Malbec wine grape phenology. But it 2012). The literature also reports on glacier area reduction and does show that water shortages are the main vulnerability for changes in snow precipitation for the region and how water Malbec wine (Castex et al. 2015). supply can sharply change once glacier areas start disappear- ing (Boninsegna and Llop 2015; Castex et al. 2015; Kaser et Mendoza’s terroir is characterized by its high altitude in the al. 2010). In addition, water use has been highly inefficient Andean foothills, where the best wines are produced between (Kaser et al. 2010). 1,524 and 3,000 meters above sea level (Adelsheim et al. 2016). The mountain soil has low organic material, is formed Mendoza’s water resources rely on surface water supplied by rock and alluvial clay, and provides good drainage. Most from snowmelt and the interaction with groundwater; this vine roots cannot reach the groundwater and therefore need enables the creation of a natural phenomenon, the oasis. The to be irrigated (Adelsheim et al. 2016). High altitude ter- climate impacts on snow precipitation and glacier melt- roirs with very little rainfall (200 to 250 mm annually) allow ing – as well as the region’s increased use of groundwater controlled irrigation and makes snow precipitation in the – pose environmental challenges for the region’s wine sector. mountains a crucial water supply source. About 70% to 80% Understanding the interaction of these two components is necessary to preserve the oasis, a crucial water supply 2 Phenology is the study of cyclic and seasonal natural phenomena, especially in relation to climate and plant and animal life. source for the region. Box1: California Groundwater restrictions that will impact wine-grape growers – and hence, Sustainability Management Act the main economic activity for the region. Regional Water Management ties financial support Conclusion from the State to a process that allows stakeholders Despite the wine industry’s enormous efforts to recover from from self-identified hydrologic regions to develop in- the crisis of the 1980s and improve wine quality, there are tegrated plans and identify broadly supported water still several challenges that need to be addressed to ensure the management actions. economic sustainability of the Mendoza region. Thousands of In California, the Sustainable Groundwater Manage- small-farm families produce the majority of the wine grapes ment Act requires self-identified Groundwater Sustain- and yet are struggling to reap the benefits of the region’s ability Agencies to propose actions, in the form of a improved international reputation. Supporting an economi- Groundwater Sustainability Plan that ensures that past cally sustainable production of good quality wine that benefits historic groundwater overdraft is halted and reversed. small growers can also benefit the region’s wine reputation. This plan is intended to be developed in concert with From a policy perspective, evaluating the impact differences local stakeholders so that all parties accept actions to on small and large growers can illuminate current socioeco- enhance aquifer recharge or limit the volume of per- nomic vulnerabilities of the region and thus inform strategies mitted groundwater pumping. The aim is to avoid the with more equitable outcomes. need for formal, state mandated adjudication. This reform focuses on local water management decision- Water supply conditions have changed, and the current making authority, reserving oversight for the State. water law cannot easily address the new challenges related to changes in climate conditions. Groundwater access is somewhat regulated but, as is the case in California, further Water governance challenges work is needed to ensure the sustainability of groundwater High altitude wine production relies heavily on mountain sources. Water managers need to juggle between the difficult snow precipitation in the winter to provide water supply in tasks of implementing a groundwater regulatory system while summer and spring. Consequently, water supply in Mendoza dealing with drought. The California Groundwater Sustain- has been managed for more than a century. In 1884, a water ability Management Act could be an example for water law called “Ley de Aguas de Mendoza” was created to distrib- managers in Mendoza to consider to ensure a reliable water ute water based on registered land in production. supply for the region while conserving the ecological sustain- ability of groundwater resources (California Department of With some modifications, this is still the main law for distrib- Water Resources n.d.). uting water. The Departamento General de Irrigación (DGI) is one of the oldest water management institutions in Latin As presented in this document, the Mendoza region has many America (Richard Lee 1990). DGI is responsible for supply- challenges, but each of those challenges also has potential ing water to producers and for fulfilling other water demands, solutions. A large production system of high-value, irrigated as well as granting access to groundwater sources. They are in agricultural crops is not isolated from the regional economy. charge of planning and preparing for future changes in climate Because of its history, economy, and perhaps climate, grow- and water demands. ers’ size and type has bifurcated: a few growers are large and economically efficient, and a large majority of grow- Mendoza faces similar challenges to California in regards to ers struggle to maintain wine grapes that meet international water planning. Both regions rely on mountain snowmelt for quality standards. their water supply and have a long history of regulating that supply3. Both regions also face frequent consecutive droughts When implementing new strategies and regulations, decision- causing an increase in the use of groundwater. makers need to evaluate the key actors in this economy and who will be affected by new policies – or, more importantly, In the last few years4, California has transitioned to a re- who will be excluded. Innovative scientific analysis, such gional water management regulation for groundwater sources as the Robust Decision Support Framework (Bresney and (Box 1). Mendoza could learn from the California regula- Escobar 2017), could provide the means for decision-makers tory framework, with the aim of obtaining the knowledge to examine the future climate impacts on the hydrology, and tools to ensure the sustainability of the system. Changes evaluate sustainable water management strategies, and in the regulation of surface and groundwater supply would support small wine-growers for a thriving economy in a require an investment from policy-makers; it would mean sustainable environment. not only updating surface water regulations and monitoring groundwater pumping, but also implementing restrictions on References farmers’ use. Such changes can be controversial but possible, Adelsheim, D., Busch, C., Catena, L., Champy, B., Coetzee, J., as demonstrated in California. et al. (2016). Climate Change: Field Reports from Leading Winemakers. Journal of Wine Economics, 11(01). 5–47. http:// www.wine-economics.org/aawe/wp-content/uploads/2016/06/ Updating current regulations is key to ensuring Mendoza has Vol11-Issue01-Climate-Change-Field-Reports-from-Leading- a sustainable water supply in the future. Policy-makers have Winemakers.pdf DOI:10.1017/jwe.2016.4. a difficult task ahead of them in implementing water supply Anderson, K. and Aryal, N.R. (2013). Database of Regional, National and Global Winegrape Bearing Areas by Variety, 2000 and 2010. Wine Economics Research Centre, University of Adelaide. 3 https://www.waterboards.ca.gov/waterrights/water_issues/programs/bay_ delta/sacwam/ Biondolillo, A. (1999). Gestión Agropecuaria. De la teoría 4 http://www.water.ca.gov/groundwater/sgm/ a la acción. Nuevo Hacer. https://www.biblio.uade. edu.ar/client/es_ES/biblioteca/search/detailnonmodal/ 1914, Convergencia. Entre memoria y sociedad. 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Food Research International, 43(7). 1844–55. DOI:10.1016/j. Published by: foodres.2010.05.001. Stockholm Environment Institute Morábito, J., Alvarez, A., Drovandi, A., Hernández, J., Hernández, 1402 Third Avenue, Suite 900 R. and Martinis, N. (2009) El agua en Mendoza y su Seattle, WA 98101 problemática ambiental. Centro Regional Andino, Instituto Nacional del Agua (CRA-INA), Mendoza. USA Moretti-Baldín, G., 2008. Historia, historiografía y gestión cultural Tel: +1 206 547 4000 del patrimonio vitivinícola de Mendoza, Argentina. http://www. scielo.org.co/pdf/apun/v21n1/v21n1a08.pdf Author contact: Nicholas, K. A. (2014). Will We Still Enjoy Pinot Noir? Laura Forni Scientific American, 312(1). 60–67. DOI:10.1038/ scientificamerican0115-60. [email protected] Reta, J. (2003). Provincia de Mendoza, Argentina. http://www.fao. Media contact: org/docrep/006/y5062s/y5062s0j.htm. Emily Yehle Richard-Jorba, R.A., ed. (2006). La región vitivinícola argentina: [email protected] tranformaciones del territorio, la economía y la sociedad, 1870- sei-international.org This discussion brief was written by Laura Forni. It is a an output of the SEI-US Water Group. To learn more about potential 2018 applications of SEI’s Water Evaluation And Planning (WEAP) system, visit http://weap21.org/. Twitter: @SEIresearch, @SEIclimate